Malaysia must build capability in Rare Earth, not just host a refinery, says Ipoh Timor MP

Malaysia’s early talks with China on a rare earth refinery could mark a breakthrough in the nation’s bid to move up the critical minerals value chain, but strict Chinese laws mean the project will only be possible with high-level exemptions.

“The refinery is not the prize; national capability is. That is the difference between being buffeted by the market, and bending it,” said Howard Lee, MP for Ipoh Timor and chair of the Malaysian Parliamentary Caucus for Critical Minerals.

Free Malaysia Today this week reported that Khazanah Nasional Bhd is in preliminary discussions with Chinese state-linked partners on a potential refinery in Malaysia.

The project would fit Malaysia’s policy of banning raw rare earth exports and developing local processing, particularly of ion-adsorption clays (IAC) which carry less radioactive residue.

However, Howard pointed out that China’s Catalogue of Technologies Prohibited and Restricted from Export explicitly bans rare earth separation know-how “in any form,” covering licensing, services and even training manuals.

The restrictions are reinforced by China’s 2024 Rare Earth Regulation and Export Control Law.

“In plain terms: the legal reality today is prohibition but China has already built the legal scaffolding for a sovereign exception,” Howard said, noting that Prime Minister Datuk Seri Anwar Ibrahim and President Xi Jinping discussed rare earth cooperation in November 2024.

According to Howard, Malaysia has two possible options: a “black-box” model where Chinese operators run a plant without sharing sensitive technology, or a sovereign-to-sovereign carve-out with strict safeguards.

As a hedge, he said in a statement that Malaysia could also push Lynas Rare Earths, already operating in Gebeng, to expand into IAC processing.

Domestically, he warned, federal ambitions will stall without state buy-in. Howard also proposed a national aggregator to pool feedstock across states, negotiate with foreign partners, and ensure states receive stronger royalties.

Other than that, he also called for a Rare Earths Community Benefit Fund to channel revenue into environmental protection, skills and research.

“Malaysia must not be hostage to one gatekeeper,” Howard said, urging dual-track talks with China and non-Chinese producers.